We have used mouse ES cells transfected with the green fluorescent protein (GFP) reporter gene regulated by albumin (ALB) enhancer/promoter to establish in vitro system to differentiate the ES cell into the hepatocytic lineage. We discovered that a serum-free chemically defined medium supports formation of embryoid bodies (EBs) and differentiation of hepatic lineage cells in the absence of exogenous growth factors or feeder cell layers. The FACS-purified GFP positive cells developed into functional hepatocytes without evidence of cell fusion and participated in the repairing of diseased liver when transplanted into MUP-uPA/SCID mice. We have extended this approach to human ES cell lines and are currently evaluating the efficiency of two human ES cell lines (i.e. H9 and H1) to differentiate into the hepatocytic lineage.